Economic Turnaround Under Way Post-Lockdown

With collections from the Goods and Services Tax (GST) topping one lakh crore of rupees for the second successive month in a row (in November) coupled with a raft of positive tidings ranging from better passenger car sales, railway freight loading, the Purchasing Managers’ Index (PMI) for manufacturing to the uptick in the services; all unmistakably signal the sprouts of economic turnaround. Interestingly, the decline in the latest quarterly gross domestic product (GDP) growth rate by 7.5 per cent during the second quarter (July-September) 2020-21 compared to a almost 24 per cent nosedive in the first quarter, when the lockdown effects were adverse to activities across the real sectors, has given rise to hope of a sharp recovery in the remaining quarters. This is borne out by the latest assessment of the Economic Affairs Department of the Finance Ministry pointing to the economy inching firmly on the path of a ‘V-shaped’ recovery close on the heels of the unlocking process that is bolstered by a slew of ‘astute’ stimulus measures. 

Output growth was robust in the second quarter with contraction by 7.5 per cent, compared to the same period in the previous year made possible as manufacturing sector output growth saw the sharpest rebound from a negative 39 per cent in the first quarter to positive 0.6 per cent growth in the second quarter. This healthy recovery was ascribable to meeting the pent-up demand for industrial goods and to rebuild inventories as manufacturing sector got back its momentum steadily but surely. 

Although gross revenues from the GST stood at nearly 1.05 lakh crore of rupees in November, just 1.4 per cent higher than a year ago, the pickup in GST revenues in October and November, after a fluctuating trend in the initial months following the strictest lockdown the economy must perforce have to endure, could help cut down the shortfall in GST compensation to the States. In November, Rs. 8242 crore were gleaned as cess that is solely used to compensate the states for implementing the GST when the states consented to subsume a spate of local levies into the state GST.

More encouragingly, over and above the boost in the GST yields in November, data released by the Controller General of Accounts reveal that after contracting in the first half of the financial year, the tax collections of the Centre picked up pace in October. The improvement in collections is distinctly broad- based, propelled by higher indirect taxes and personal income taxes. At the aggregate level, the Centre’s gross collections leapt by a handsome 17 per cent in October this year, owing to higher indirect tax yields with revenue from Central GST, excise and customs all evincing winsome growth, as consumption activity kept pace in the festive season.

Rating agency Moody’s in its latest assessment noted conditions would improve for Indian companies this year, as economic activity gathers pace post-lockdown and earnings grow on the back of widespread demand revival across sectors underpinning stable outlook for Indian corporates in 2021. It said the prevalent low interest rate milieu and ample credit availability would allow firms with strong balance sheets to refinance and grow. 

Reflecting the resurgence in the real sectors of the economy, the Union Minister for Commerce & Industry Piyush Goyal highlighted a rosy scenario. Addressing members of the Board of Trade (BoT) meeting recently he said “the domestic industry gained resilience with global supply chains looking up to India to provide an anchor for transparent and more open economies to engage with”.

Still, economists caution against continued weak aggregate demand that could render the growth impulses unsustainable. Hence, they underscore the need for more direct and specific steps to facilitate momentum of growth in the job-intensive sectors in stress such as travel, tourism and retail to ensure that additional job losses do not morph into future demand slump to deter the recovery that is under way.

Script: G. Srinivasan, Senior Journalist